In 2004, plaintiffs filed a putative class action against Edward D. Jones & Co., one of the largest brokerages in the United States, for violations of California’s unfair competition laws (UCL) and breach of fiduciary duties alleging that it “entered into agreements with certain mutual fund companies whereby Defendant placed the companies on an internal ‘Preferred Funds’ list and received retention ‘kickbacks’ based on the amount of money held by Plaintiff and the Class members in those funds.” In re Edward Jones Holders Litig., 453 F.Supp.2d 1210, 1211 (C.D. Cal. 2006). Defense attorneys removed the action to federal court on the ground that the state law claims were preempted by the federal Securities Litigation Uniform Standards Act (SLUSA), but the district court granted plaintiffs’ motion to remand finding that SLUSA did not apply “because the alleged wrongdoing . . . was not ‘in connection with the purchase or sale of covered securities.'” Id., at 1212. Two years later, after the Supreme Court issued its opinion in Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 548 U.S. —-, 126 S.Ct. 1503 (2006), defense attorneys removed the class action to federal court anew on the ground that Dabit “compels a finding that Plaintiffs’ claims are in fact preempted by SLUSA.” Id. Plaintiffs again moved to remand the complaint to state court, but the district court denied the motion.

First, the district court held that plaintiffs’ procedural objections to removal were waived because the motion to remand the class action to state court was untimely under 28 U.S.C. § 1447(c). In re Edward Jones, at 1212-13. Plaintiffs had argued that the removal was defective in two ways: (1) as untimely under 28 U.S.C. § 1446(b), and (2) as an improper “successive” notice predicated on the identical legal ground previously raised and rejected by the district court. Id., at 1212. An untimely notice of removal is a procedural defect, not a jurisdictional defect, id., at 1213 n.3 (citation omitted), and Rule 6(e) does not extend the time for filing a motion to remand so the motion – filed 32 days after removal – was untimely, id., at 1213.

Turning to SLUSA, the district court held that “SLUSA preemption is triggered when the following conditions are met: (1) the underlying suit is a ‘covered class action,’ (2) the action is based on state law, (3) the action concerns a ‘covered security,’ and (4) the defendant is alleged to have misrepresented or concealed a material fact or used or employed a manipulative device or contrivance ‘in connection with the purchase or sale’ of a security.” In re Edward Jones, at 1214. Plaintiffs argued, as they had in their first motion to remand, that SLUSA did not apply because the class action complaint alleged that Defendant accepted kickbacks and failed to inform class members of the kickbacks; plaintiffs asserted that this alleged act of fraud was not “in connection with the purchase or sale” of securities. Id. The district court admitted that it had been persuaded by this argument before, but held – based on its analysis of Dabit – that the Supreme Court expressly rejected this reasoning. Id., at 1214-16 and n.6. Because the district court determined that SLUSA preempted the causes of action in the class action complaint, it dismissed the action as the “only appropriate alternative,” as explaining at page 1217: “It is well established that, once a court determines that a given state law action is preempted by the SLUSA, it must be dismissed.” (Citation omitted.)

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About the Author

Michael J. Hassen

Michael J. Hassen's litigation practice spans almost 30 years and emphasizes general business and commercial litigation, including class action defense and unfair business practice representative actions (section 17200).

He represents lenders in all facets of lender litigation, ranging from class actions and unfair business practices based on alleged "predatory" lending and RESPA violations or alleged violations of the Fair Debt Collection Practices Act, to claims alleging elder abuse or challenging the validity or priority of liens.

Michael also has significant experience in business torts such as misappropriation of trade secrets and raiding of corporate employees, ADA claims, and all phases of commercial and real estate finance, construction finance and construction defect claims.

He is experienced in appellate matters, having had primary responsibility for preparing more than 100 appellate briefs.